Chapter Twelve Pricing, Distributing, and Promoting Products

After reading this chapter, you should be able to: 1.Identify the various pricing objectives that govern pricing decisions and describe the price-setting tools used in making these decisions. 2.Discuss pricing strategies that can be used for different competitive situations and identify the pricing tactics that can be used for setting prices. 3.Explain the meaning of distribution mix, identify the different channels of distribution, and describe the major activities in the physical distribution process. 4.Describe the role of wholesalers and explain the different types of retailing. L E A R N I N G O B J E C T I V E S 12-2

After reading this chapter, you should be able to: 1.Describe how online shopping agents and online retailers add value for advertisers and consumers on the Internet. 2.Identify the important objectives of promotion, discuss the considerations in selecting a promotional mix, and discuss advertising promotions. 3.Outline the tasks involved in personal selling, describe the various types of sales promotions, and distinguish between publicity and public relations. L E A R N I N G O B J E C T I V E S (cont.) 12-3

What’s in It for Me? By understanding this chapter’s methods for pricing, distributing, and promoting products, you can benefit in two ways: As both employee and manager, you’ll be prepared to use the concepts of pricing, distributing, and promoting products in your career. As a consumer, you’ll have a clearer picture of how a product’s promotion and distribution affect its selling price, causing it to rise or fall. 12-4

Determining Prices Pricing to Meet Business Objectives Pricing objectives The goals that sellers hope to achieve in pricing products for sale Profit-maximizing pricing objectives Setting prices to sell the number of units that will generate the highest possible total profits Revenues = Selling Price x Units Sold Market share objectives Using pricing to establish market share—a company’s percentage of the total industry’s sales for a specific product type 12-5

Determining Prices (cont.) Price-Setting Tools Cost-Oriented Pricing Considers the firm’s desire to make a profit and its need to cover production costs Variable costs: Costs that change with the number of units of a product produced and sold Fixed costs: Costs such as insurance and utilities that must be paid regardless of the number of units produced and sold Selling price = Seller’s cost + profit 12-6

Determining Prices (cont.) Breakeven Analysis Shows, at any selling price, the amount of loss or profit for each possible volume of sales Breakeven point: Number of products that must be sold so total revenues exactly cover both fixed and variable costs 12-7

FIGURE 12.1 Breakeven Analysis 12-8

Pricing Strategies and Tactics Pricing Existing Products A firm has three options for pricing existing products: Pricing above prevailing market prices for similar products Pricing below market prices Pricing at or near market prices Pricing New Products Price skimming Setting an initially high price to cover costs and generate a profit—may generate a large profit on each item sold Penetration pricing Setting an initially low price to establish a new product in the market 12-9

Pricing Strategies and Tactics (cont.) Fixed Versus Dynamic Pricing for E-Business To attract sales that might be lost under traditional fixed-price structures, sellers alter prices privately, on a one-to-one, customer-to- customer basis At present, fixed pricing is still the most common option for cybershoppers 12-10

Pricing Strategies and Tactics (cont.) Pricing Tactics Price lining Offering all items in certain categories at a limited number of prices (price points) Psychological pricing Odd-even pricing: Customers prefer prices that are not stated in even dollar amounts Discounts: Price reductions that stimulate sales 12-11

The Distribution Mix Distribution Mix The combination of distribution channels by which a firm gets products to end users Intermediaries (Middlemen) Help distribute goods, either by moving them or by providing information that stimulates their movement from sellers to customers Can provide added value by saving consumers both time and money Wholesalers sell products to other businesses for resale to final consumers Retailers sell products directly to consumers 12-12

The Distribution Mix (cont.) Distribution Channel Path a product follows from producer to end user Popular Paths Channel 1: Direct distribution (direct channel) Channel 2: Retail distribution Channel 3: Wholesale distribution Channel 4: Distribution by agents or brokers 12-13

FIGURE 12.2 Channels of Distribution 12-14

Wholesaling Wholesalers Independent operations that sell consumer or business goods Buy products from manufacturers and sell them to other businesses, and usually provide storage and delivery Provide additional value-adding services for customers Agents and Brokers Sales and merchandising representatives for producers or sellers Do not own inventory, but manage it for producers 12-15

FIGURE 12.3 The Value- Adding Intermediary 12-16

Retailing Types of Retail Outlets Product line retailers carry broad product lines Department stores and supermarkets Specialty stores carry one line of related products Bargain retailers carry wide ranges of products and come in many forms Discount houses, catalog showrooms, factory outlets, wholesale clubs Convenience stores offer accessible locations and ease of purchase 12-17

Retailing (cont.) Nonstore Retailing Vending machines Direct-response retailing Mail order (or catalog marketing) Telemarketing Direct selling 12-18

Online Shopping Agents Two types of E-Intermediaries Shopping agents (e-agents) help Internet consumers by gathering and sorting information. Electronic retailing is made possible by communications networks that enable sellers to post product information on consumers’ PCs

Electronic Retailing Electronic Catalogs (E-catalogs) Use the Internet to display products Electronic Storefronts (virtual storefronts) A website from which consumers collect information about products, place orders, and pay for purchases Cybermalls Collections of virtual storefronts representing diverse products Interactive and Video Marketing Viewers shop at home by phoning in or ing orders 12-20

TABLE 12.1 Top 10 Online Retailers 12-21

Physical Distribution The activities needed to move products from manufacturer to consumer Makes goods available when and where consumers want them Keeps costs low Provides services to satisfy customers 12-22

Physical Distribution (cont.) Warehousing Operations Private warehouses are owned by producers Public warehouses provide rented storage space Transportation Operations Principal differences are speed and cost Transportation Modes Trucks Planes Water carriers Railroads Pipelines 12-23

Physical Distribution (cont.) Physical Distribution and E-Customer Satisfaction Order fulfillment Involves getting the product to each customer in good condition and on time Distribution as a Marketing Strategy Distribution is an increasingly important way of competing for sales. For some firms distribution is a cornerstone of business strategy 12-24

The Importance of Promotion Promotion The techniques a firm uses for communicating information about products Promotional Objectives To communicate information To position products To add value To control sales volume Positioning Establishing an easily identifiable product image in the minds of consumers by fixing, adapting, and communicating the nature of the product itself 12-25

The Importance of Promotion (cont.) Promotional Mix Tools Advertising Personal selling Sales promotions Publicity and public relations Promotional Mix The combination of promotional tools 12-26

The Importance of Promotion (cont.) Matching Promotional Tools with Stages in the Buyer Decision Process: Recognize the need to make a purchase Best tool: advertising and publicity Search for information about products Best tool: advertising and personal selling Compare benefits and features of competing products Best tool: personal selling Choose products that are a good value and buy them Best tool: sales promotion and personal selling Evaluate products after the purchase Best tool: advertising and personal selling 12-27

Advertising Promotions Advertising Paid, non-personal communication by which an identified sponsor informs an audience about a product Advertising Media The specific communication devices for carrying a seller’s message to potential customers Media Mix The combination of media through which a company advertises 12-28

FIGURE 12.4 Top 10 National Advertisers 12-29

TABLE 12.2 Media Use, Strengths, and Weaknesses 12-30

Personal Selling A salesperson communicates one-to-one with potential customers to identify their needs and align them with the seller’s products Can be the most expensive form of promotion Personal Selling Tasks Order processing Creative selling Missionary selling 12-31

Sales Promotions Short-term promotional activities designed to encourage consumer buying, industrial sales, or cooperation from distributors Types of Sales Promotions Samples Coupons Premiums Contests Point-of-sale displays Trade shows 12-32

Publicity and Public Relations Publicity Information about a company, a product, or an event transmitted by the general mass media to attract public attention Public Relations Company-influenced publicity that seeks either to build good relations with the public or to deal with unfavorable events 12-33

Key Terms advertising advertising media bargain retailer breakeven analysis breakeven point broker catalog showroom convenience store cost-oriented pricing coupon creative selling cybermall department store direct channel direct selling direct-response retailing discount discount house distribution channel distribution mix e-catalog e-intermediary 12-34

Key Terms (cont.) electronic retailing electronic storefront factory outlet fixed cost interactive marketing intermediary mail order (catalog marketing) market share markup media mix missionary selling odd-even pricing order fulfillment order processing penetration pricing personal selling physical distribution point-of-sale (POS) display positioning premium price lining price skimming pricing 12-35

Key Terms (cont.) pricing objectives private warehouse promotion promotional mix psychological pricing public relations public warehouse publicity retailer sales agent sales promotion shopping agent (e-agent) specialty store supermarket syndicated selling telemarketing trade show variable cost video marketing warehousing wholesale club wholesaler 12-36